Demand Impacts Facing the Aerospace and Defense Industry

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The COVID-19 outbreak has been the biggest disruption to the commercial aviation industry in the past decade with demand for airline bookings plummeting in response to new regulations and business restrictions on travel increasing. With the health and safety of the consumers and the workforce being a top priority, this continuous reduction in air travel will most likely persist for a prolonged period.

Uncertainty has clouded the view to recovery for airliners and aircraft manufacturers. The combined effects of the coronavirus outbreak, trade wars, and the grounding of the Boeing 737 MAX have made it even more evident that supply chains, no matter how mature, are more inelastic than we believe.

With less planes active, MRO service providers and spare part suppliers have been experiencing a nosedive in flight hour/flight cycle-related maintenance. Airline manufacturers are also looking at a downturn as airlines may prefer to fly older planes rather than replace them with new models. In general, consolidation is going to be a major theme for the aerospace industry. Cash is king, so any cost containment or reduction will be sought out by leaders. Downsizing OEMs and suppliers’ scale while increasing productivity will be key.

While on the defense side of the industry, the situation seems less dire. Their demand is protected by having budgeted government spending, and a supply chain with less exposure to locations that saw more of an impact, such as Asia. Although some events outside the United States will affect the United States defense industry, this is to a lesser extent compared to consumer-facing aerospace organizations.

This isn’t the first time, nor the last, that a major disruption in the aerospace and defense industry has arisen. The key is how to respond both now and in the future. Although it may seem impossible, maintaining profitability in the face of such uncertainty is achievable.

A concentrated and data-driven Sales and Operations Planning (S&OP) approach is the first step toward corrective action, such as Vanguard Predictive Planning for S&OP.  Vanguard helps organizations achieve more reliable revenues, improve margins, and therefore increase profitability.  Non-technical business users can leverage machine learning and AI to discover the best possible outcomes among competing courses of action. S&OP optimization is the key enabler of survival during a disruption.

The coronavirus outbreak has exposed many weaknesses in the hyper-connective nature of global supply chains, and shed light on the need for contingency plans. S&OP optimization holds great potential to realize value through closer collaboration in the supply chain, while also leveraging the supply chain as a competitive weapon and shield against the effects of disruptive events.  Solutions begin to emerge when looking at the supply chain for opportunities to:

  • Improve the velocity of goods and information
  • Enhance visibility into supply, demand, and operating constraints
  • Encourage collaboration and decision making
  • Shed costs, rather than redistribute
  • Achieve a faster and predictable time to market for new or substitute products to offset the effects of a disruptive event.

Most organizations already have contingency plans in place, but they may not fully address the unknown variables of a global pandemic such as the coronavirus outbreak. Organizations experiencing a slowdown would do well in this time to re-evaluate and prepare themselves by working to become more efficient and effective organizations. S&OP optimization can arm organizations with the best corrective actions to address multiple scenarios, while remaining ready to re-engage when the clouds finally lift.

Although we may not know what the future holds, organizations that take proactive steps to mitigate supply chain risks and increase visibility are more likely to recover efficiently and see continued success and profitability.